Fidelity is set to introduce Ethereum staking and quarterly cash distributions, adding a new source of potential income to the spot ETF.
FETH held $898.71 million in net assets as of August 11. However, staking has not started, and Fidelity warns that funding cash distributions could reduce the fund’s ETH exposure.
Fidelity gearing up for Ethereum staking with FETH
In a subsequent Form 8-K on August 7, Fidelity stated it had amended trust and sponsor agreements for FETH to allow staking.
Custody agreements have also been drawn up with Anchorage Digital and BitGo but Fidelity Digital Assets will continue its existing role as the fund’s custodian.
The amended registration statement indicates that FETH will stake up to 100% of its ETH, but is not committed to any minimum amount.
As custodians, Fidelity will keep hold of the private keys, and its chosen operators will run Ethereum validators. The proposed node operators include Blockdaemon, Figment and Galaxy Digital Trading Cayman.
85% of these rewards will go to FETH while 15% will go to the sponsor, custodians, node operators, and other service providers.
Staking will start only after the amended registration statement becomes effective.
FETH reaches nearly $900M in assets
As of August 11, FETH has Net assets of $898.71m and Cumulative Net inflows of $2.12 billion, according to SoSoValue data.
Data shows that daily flows remain uneven, and the fund recorded a $2.33 million net outflow, alongside $19.64 million in trading volume.
The firm plans to convert eligible staking income into fiat and distribute it to shareholders quarterly. These payments are not, however, guaranteed
Fidelity states that selling rewards and current holdings of ETH may also be a method employed to pay distributions. This would likely reduce FETH’s exposure to ETH and it would no doubt affect its NAV [Net Asset Value] and share price.
Besides this, staking introduces more risks, such as slashing, validator failure, or having withdrawal delays.
Final Summary
- FETH could stake up to 100% of its ETH and retain 85% of gross staking rewards.
- FETH has not commenced staking, and by funding quarterly cash distributions they would reduce FETH’s underlying ETH exposure.